Some businesses are entitled to a VAT discount on their electricity and gas bills. Have you been overpaying? We’ll show you how to find out whether or not you’re eligible, and dish out a few other tips to help you get cheap business energy.
Unfortunately, you must pay VAT on business energy and it can’t be claimed back, even though it’s a business-to-business expense. It’ll be automatically included in your bill.
Most businesses will pay 20% VAT for their gas and electricity usage. However, some businesses will qualify for a reduced rate of 5%. Whether this applies to you will depend on what your business is and the way you consume energy. If you qualify, you will need to apply for the discount separately from your supplier by completing a VAT declaration form.
Let’s take a look at where the discounted rate of 5% VAT applies. There tends to be two qualifying uses for the discount:
You may also qualify for the discount if at least 60% of your energy consumption is as part of a qualifying use listed above.
If your business energy consumption is below a certain level, your usage is classed as domestic use. This is irrespective of whether you are a business or not. As such, you’ll qualify for the 5% VAT rate.
The government outlines that this rate is 145 kWh per day of piped gas to one customer at any one of the customer’s premises. For electricity it’s 33 kWh per day. The VAT discount should be applied automatically by your energy supplier, whether your bill is taken from a meter reading or estimation.
It’s worth pointing out that some institutions may exceed this limit but do still qualify for the discount, such as hospices, residential care homes, self-catering holiday accommodation and monasteries, to name a few.
Some businesses may partially apply for the discounted rate. This is often the case with residential care homes or self-catered accommodation. If at least 60% of your business’ energy consumption qualifies for the 5% discount – be that through low-usage or as a charity, for example, then the 5% VAT rate will apply to your entire bill.
On the other hand, if less than 60% of your business energy is for qualifying usage, then the 5% rate will only apply to that portion and you’ll pay 20% VAT on the rest of your bill.
If you weren’t aware your business could qualify for the discount – and it hadn’t been automatically applied to your bill – then you may well be eligible for a rebate. Typically, you’ll be able to claim reimbursement for any VAT overpayments for up to the previous four years.
You’ll need to supply a declaration form to HMRC, which you can get from your supplier. If you’ve switched providers in the last four years (or period for which you’re claiming) then you’ll need declarations from each of your previous suppliers. You’ll also need to submit individual declarations if your business has multiple sites that are eligible for a discount or you have separate business gas and electricity suppliers.
The Climate Change Levy (CCL) is additional tax that businesses pay for their gas and electricity consumption. It’s designed to encourage energy efficiency and makes businesses more environmentally responsible.
Your business won’t have to pay the CCL if it meets the low usage requirements and you qualify for a reduced rate of VAT.
If you don’t qualify for an exemption, you can instead sign a Climate Change Agreement (CCA). What this means is that you agree to make certain energy-efficient adjustments to reduce your business’ consumption and emissions, and in turn you’ll get a discount on your VAT.
You’ll either qualify for a business energy VAT discount or you won’t – but don’t fret. This isn’t the only way to save money. Hands down, the most effective way to reduce your business energy bill is by switching at the end of your contract. You’re always sure to get the most competitive rate if you take out a new tariff, so compare business energy quotes with us simply by putting in your postcode. It couldn’t be easier!